Reducing or eliminating this vital support would shift tax load to lowest-earning families

RALEIGH (February 19, 2013) – As policymakers consider changes to North Carolina’s tax code, it’s critical to maintain proven policy tools such as the Earned Income Tax Credit, a new report says, which is a critical support for low-paid workers during the weak economic recovery.

The state EITC provides workers earning low wages with a credit to offset their total state and local tax contributions, said a report released this morning by the Budget & Tax Center, a project of the North Carolina Justice Center. Nearly 907,000 North Carolinians claimed the credit in 2011 in each of the state’s 100 counties. These North Carolinians work, pay taxes, and would be directly affected by the reduction or elimination of this modest but crucial income support.

Even with the state EITC, moderate- and low-income families still pay a greater share of their income in state and local taxes compared to the upper-middle class and wealthy, the report said. Despite this upside-down structure, legislators are considering either reducing the state EITC from 5 to 4.5 percent of the federal credit for tax year 2013 and simply not extending the tax credit past December 2013. A cut in a state EITC or its outright elimination would result in a tax hike on low-earning families.

Worst yet, it could push more North Carolinians into poverty by eliminating one of the state’s most powerful antipoverty tools at a time when North Carolina has the 13th highest poverty rate in the nation, and more than 1 in 4 of its children live below the federal poverty line. The EITC is widely recognized as one of the most effective anti-poverty tools nationwide, especially for children.

The state EITC is a small investment that ensures hard-working North Carolinians are able to meet their basic needs and avoid raising their children in poverty. The credit can only be claimed by those who earn income through work, making it essential to ensuring that these workers are able to make ends meet. It’s mostly used as a temporary support, with a three out of five recipients claiming the credit for short periods, making the credit an effective way to help families stay on their feet by offsetting short-term struggles resulting from job loss, reduced hours, or reduced pay.

“Today, with low-income working families battered by unparalleled economic challenges, the state EITC plays a particularly vital role,” said Tazra Mitchell, BTC fellow and author of the report. “Now is precisely the wrong time to further shift the tax load to North Carolina’s lowest-paid workers—especially those with children to support—by cutting or eliminating the state EITC.”